- 20 -
“A true lender is concerned with interest.” American Offshore,
Inc. v. Commissioner, supra at 605 (citing Estate of Mixon v.
United States, 464 F.2d at 409). The failure to insist on
interest payments indicates that the payors expect to be paid out
of future earnings or through the increased market value of their
equity interest. See American Offshore, Inc. v. Commissioner,
supra at 605 (citing Curry v. United States, 396 F.2d 630, 634
(5th Cir. 1968)).
The alleged debt in this case was to be paid, if at all,
from the proceeds generated when the Corbin project was sold.
Although petitioner claims that interest was due and would be
paid at that time, the critical fact is that Mr. Magness’
obligation to make any payment to petitioner was contingent on
the liquidation of the Corbin properties. Mr. Magness simply was
not required to pay for the ongoing use of petitioner’s money as
one would expect Mr. Magness to do if the advance were a bona
fide debt. Although the advance was dressed up to look like a
short-term debt payable in 1 year, petitioner and Mr. Magness did
not intend it to be so, nor did they treat it as such. We
conclude, therefore, that this factor favors respondent’s
position.
11. Ability To Obtain Loan From Outside Lending Institutions
"[T]he touchstone of economic reality is whether an outside
lender would have made the payments in the same form and on the
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011